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Outsourcing paradox

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Faced with challenges that include sluggish top-line growth and overwhelming debt loads, b-to-b media companies have looked to cut costs. One cost-cutting move gaining steam is outsourcing, both within the U.S. and globally, but media companies are finding that the potential financial upside may be countered by logistical downsides.

Advanstar Communications and Questex Media Group—which was part of Advanstar before a private equity-backed management buy-out in 2005—have begun initiatives this year to outsource elements of their production.

Advanstar raised some eyebrows in April when it struck an agreement to outsource production-related functions to HCL Technologies overseas. With the move, Advanstar eliminated about 100 staff positions.

Advanstar was purchased for $1.1 billion in 2007 by Veronis Suhler Stevenson and restructured itself in September 2009 to eliminate $385 million in debt. The company was left with about $505 million of debt at the time.

He said the advantage was a “true variable cost model.” When contacted last month for comment about the progress of its outsourcing initiative, Advanstar declined to comment.

Questex, which exited bankruptcy last year, has also outsourced production jobs, but its initiative is with a U.S.-based company, Superior Media Solutions. As part of the deal, about 15 Questex employees were given the opportunity to become employees of SMS.

“We believe that in any sort of outsourcing or BPO [business process outsourcing], the balls get dropped in the knowledge transfer,” said Bill Walker, CEO of SMS. “We try to hire our people from the client so that the knowledge comes with them. We also don’t want to have to train our people on the basics of their jobs.”

SMS said it expects to save 20% in costs for its clients through a variety of means. First, now that a production group has been created with the former Questex employees, SMS would not likely need to hire as many people from its next client. Additionally, SMS saves on overhead, because most employees work from home. “We add technology and best practices, and don’t need as much labor, so we are cheaper and variable,” Walker added.

Questex and Advanstar are, of course, not the only b-to-b media companies that are outsourcing tasks. Brent Pearson, CIO of UBM Electronics, said his organization has been outsourcing software development and quality assurance for more than five years to China, India, Russia and Ukraine.

The benefits, Pearson said, are cost savings and round-the-clock development. “I especially like to have QA offshore so that, at the end of a day of software development in the U.S., a QA team can start testing the code and deliver test results to the development team the following morning,” he said.

Dedra Smith, president of magazine production consultancy Printmark West, points out that outsourcing overseas can bring savings “in the neighborhood of 50%,” but the relationship also adds risks “in terms of how well the tasks are understood and executed.”

Smith said contact between a publisher’s advertisers and the outsourced production team can be difficult due to time zones and language barriers. “The difficulty in factoring this cost may lead companies to elect outsourcing without a full understanding of the risks,” she said.

John Blanchard, former VP-operations for Reed Business Information, notes that his former company worked with a business in India that had an exceptional talent level, skill set and experience. “I found that when we opened our eyes to what was available, it was astounding,” he said.

However, Blanchard also said work flow incorporating an overseas company required a cultural change within RBI’s teams in order to manage projects that were being completed remotely. “We realized early on that the suppliers needed direct access to our work flow and CMS systems in order to participate fully in our programs and core work flows,” he said. “This required significant cooperation with IT and a review of network-access policies.”